LAP Financial Services

Reducing Federal Income Tax with Qualified Charitable Distributions How to Preserve a Tax Write-Off The Tax Cuts and Jobs Act of 2017 (TCJA) overhauled federal taxation for individuals and businesses. There were numerous changes made to the tax law, including to tax rates, the standard deduction, itemized deductions, deductions for moving expenses, benefits for dependents, alimony payments, and retirement plans. When filing a return, individuals must decide between taking the standard deduction or itemizing deductions. Under the TCJA, a single taxpayer can deduct $12,000, married taxpayers filing jointly can deduct $24,000, married taxpayers filing separately can deduct $12,000 each, and heads of household can deduct $18,000. Individuals older than age 65 may deduct an additional $1,300 if married and $1,600 if single. The TCJA raised the standard deduction in all cases, making it more advantageous for many to take the standard deduction instead of itemizing. According to the Ta...

IRS to Audit for Due Diligence Compliance Before filing season begins, IRS employees will be conducting due diligence visits based on the prior year returns. These due diligence visits are conducted either face-to-face or by correspondence.  If the IRS suspects you weren’t compliant with due diligence requirements for certain tax benefits, such as the earned income tax credit (EITC), child tax credit (CTC), including additional child tax credit (ACTC), credit for other dependents (ODC), American opportunity tax credit (AOTC) and/or the head of household (HOH) filing status, they may select you for an audit.  IRS employees will be conducting due diligence visits If selected, the IRS will contact you with either Letter 6199 (Due Diligence Visit Request) or Letter 6222 (Correspondence Due Diligence IDR) to initiate a due diligence visit. These letters ask you to respond within 14 days to either set up an appointment at your office (Letter 6199) or send information and sc...

Discrepancies between the amount of alimony deducted by payers and reported as income by its recipients increased by 38% in six years, to $3.2 billion for tax year 2016, the Treasury Inspector General for Tax Administration (TIGTA)  reported. TIGTA performed the audit to follow up its 2014 report on the alimony tax gap (TIGTA Rep't No.  2014 - 40 - 022  (3/31/14)), in which it found a $٢2.3 billion alimony tax gap for tax year 2010. Despite the earlier findings and recommendations, most of which the IRS accepted more than five years ago, TIGTA stated in its latest report that the IRS still lacked sufficient systemwide processes to identify and address alimony discrepancies and "has yet to adequately address the substantial compliance gap" they  represent. For alimony payable under separation agreements or divorce decrees executed on or before Dec. 31, 2018, alimony is deductible by the payer and includible in income of the recipient. For agreements and decrees e...

The IRS issued guidance on Thursday updating prior standard mileage rules to reflect provisions of the law known as the Tax Cuts and Jobs Act (TCJA), P.L 115-97 ( Rev. Proc. 2019-46 ). The TCJA suspended miscellaneous itemized deductions under Sec. 67 and deductions for moving expenses under 217(a) (except for members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station). The suspension is effective for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026 (“suspension period”). Specifically, the revenue procedure adds new provisions and modifies existing provisions (Rev. Proc. 2010-51) concerning use of the optional standard mileage rate during the suspension period for business purposes (58 cents per mile for 2019) and moving purposes (20 cents per mile for 2019). The earlier revenue procedure also provides guidance on use of the standard mileage rate for charitable purposes (14 cents per mile). In the ...

The new Tax Withholding Estimator tool on www.irs.gov includes a feature designed to make it easier for employees who also receive self-employment income to accurately es- timate the right amount of tax to have taken out of their pay. The estimator is an expanded, mobile-friendly online tool that replaced the Withholding Calculator, which since 2001 had offered workers an online method for checking their withholding. The old calculator lacked features geared to self-employed individuals. The new estimator made changes to address this important group. The new tool offers self-employed individuals, workers, retirees and other taxpayers a more dynamic and user-friendly way to calculate the amount of income tax they want to have withheld from either wages or pension payments. With only a third of the year remaining, the IRS encourages these taxpayers to use the estimator to take a Paycheck Checkup as soon as possible to make sure they are having the right amount of tax with- held and avo...

IRC section 280E states no deduction or credit is allowed for any amount paid or incurred during the tax year in carrying on any trade or business if such trade or business consists of trafficking in controlled substances which is prohibited by federal law or the law of any state in which such trade or business is conducted. Even though several states have legalized marijuana use to varying degrees, it remains a Schedule I controlled substance under federal law. Consistent with this designation, the U.S. Tax Court has held that limitations imposed by IRC section 280E are applicable to the ever-increasing number of marijuana businesses operating legally under state law.

Receipts for expenses are not required for deducting the standard mileage rate or the standard meal allowance. Receipts for actual expenses are re- quired to deduct lodging expenses. The per diem rate for lodging is only used to determine the amount of employer reimbursement that meets the accountable plan rules. Self-employed taxpayers who are not reimbursed for lodging cannot use the per diem rate method for deducting lodging expenses. Maki, T.C. Summary Opinion 2019-34 In general, travel expenses have strict substantiation requirements. A taxpayer must maintain records that include: • The amount of the expense, • The time and place of travel, • The business purpose of the expense, and • The business relationship between the taxpayer and persons provided meals. Courts generally require that the taxpayer produce a contemporaneous log book docu- menting the above information for each business trip taken. The taxpayer in this case regularly traveled to take care of and monitor ...